China PE To Grow By 35% – Latest ’09 Forecast

After last week’s estimates, a big producer (who wishes to remain anonymous) has given us his forecasts for the strength of 2009 growth in demand for polyolefins in China – see full details in the article below.

Interestingly, he saw the dip in recycling as a big factor in this year’s extraordinary recovery.

We all know about the strength of China’s economic rebound – sustainable or otherwise – but it could be that keeping a much-closer track on the recycling industry will also be a key factor in 2010.

With the delta between recycled and virgin material recently close to the minimum $400/tonne and if this trend continues, it will be interesting to see whether next year sees some reverse substitution.

A lot will depend on government regulations that have made it harder to ship scrap to China, and how many traders are prepared to take the plunge again. As long as there is a danger of a sharp correction in crude, trading in scrap could remain too-risky a business for many. In Q4 last year, a lot of the traders in recycled plastic went bust during the big oil-price correction.

China’s polyethylene (PE) and polypropylene (PP) virgin resin demand will rise by 20-35% in 2009 over last year on a lack of recycled material, strong domestic demand and speculation, estimates a leading exporter to China.

High-density polyethylene (HDPE) demand will grow by 35% to around 7m tonnes, linear-low density polyethylene (LLDPE) by 19-20% to 4.5m tonnes and low-density polyethylene (LDPE) by approximately 20% to 3.3m tonnes, said the exporter

PP demand would grow by 20% to 12m, he added.

This follows either dips in demand during 2008 or modest increases, depending on which grade of polyolefin. LDPE fell by 7% and PP by 1% with LDPE rising by 3%, he said.

“A factor behind the strong recovery is the lack of availability of scrap material, forcing converters to switch back to using virgin product,” said a Shanghai-based markets observer.

A drop exports of finished goods – delivered wrapped in plastic film which is shipped back to China for recycling – was behind the reduced availability, he added.

“Some traders who had dealt in scrap have also switched to virgin resin, boosting the amount of trading activity in new material.”

Many traders in recycled material also went bust in Q4 last year when scrap prices fell below the cost of virgin resin – placing further strain on the distribution network.

A further factor has been tougher government regulations restricting scrap imports on environmental reasons.

Virgin resin prices had also remained too low to justify converters using scrap material for most of this year, said a Shanghai-based source with a major polyolefin producer.

“In September, though, the delta or gap between recycled and virgin material – which has to be a minimum of $400/tonne to make recycling economic – was almost reached,” he continued.

“This was the result of very tight supply of virgin product and the cost-push from higher crude oil.”

Domestic polyolefin demand had surged on huge government economic stimulus, including a rise in bank lending, he said.

“This has led to a steep rise in automobile and real-estate sales with the resulting rise in property prices triggering a construction boom.”

Government vouchers providing discounts of the price of white goods such as washing machines and refrigerators were also behind the recovery in polyolefins, he said.

The big rise in bank lending had also fuelled speculation, he added.

“Non-traditional traders entered the market who only wanted to get their hands on polyolefins in order to use the 90 days’ credit for something else.”

They would take the credit and use it to speculate on say equities. Sometimes they made such big profits out of the stock market that they were willing to sell PE and PP at a loss.”

This is trend apparent across other chemicals and polymers, adding to price volatility.